Minimum Wage

January 18th, 2010 at 10:49 am by David Farrar

The Herald reports:

Sixty-one per cent of people want the lifted to $15 an hour, a Herald Summer Survey has found, weeks before the Government is to set the wage for this year.

The minimum wage is now $12.50 an hour, and the Cabinet is expected to decide within a fortnight whether to increase it.

61% probably support a minimum wage of $20 an hour is you asked them.

also blogs his support:

Kate Wilkinson would have got a report in October with options for a November Cabinet paper on lifting the minimum wage. In government Labour just about always made a decision before Christmas and there was always an increase effective from 1 April.

Each increase pushed up a relatively small but increasing group directly but a much bigger group indirectly.

I think it is time for the government to commit to $15 an hour from either 1 April this year, or 1 April next year at the latest.

There are a big stack of equity arguements in favour of the change. And it could be a good boost to the increasingly fragile recovery.

Business NZ  would squeal. But most employers know that lifting wage rates encourages investement in capital equipment and training to make their labour force more productive. It is all part of the movement to a high skill, high wage economy.

I am an employer. Trevor is not. In fact as far as I can tell, Trevor’s only jobs have been a teacher, an MP and a unionist. So when Trevor elects himself to speak on behalf of employers, this should be treated with the same degree of credibility as me speaking on behalf of Olympic atheletes.

You do not get to a high skill high wage economy by bankrupting companies that are not high skill and high wage.

At a time of rising unemployment, it would be stupid to have a massive 20% increase in the minimum wage. It would be particular devastating for youth employment. Already we have seen the abolition of the youth minimum wage which has had a devastating impact on youth employment levels.

The simple fact of the matter is that a 15 year old working at a department store (my first significant job) does not produce $15 an hour worth of value. And hell most 15 year olds don’t expect to be earning an hourly wage worth $30,000 a year fulltime. They are living at home, and want to just earn some spending money, and gain some work experience.

A move to $15 an hour would be inflationary also, which would mean higher interest rates, and again fewer jobs and reduced economic growth.

I’m interested in data on how many people actually earn the minimum wage, and how long they stay on the minimum wage for. I suspect most people on the minimum wage do not stay earning at that level for their working life. They gain experience and skills and become more valuable. That is my preferred way to get people off the minimum wage.

Does anyone know of any data about frequency and duration of people earning the minimum wage in NZ?

UPDATE: The survey cited by the Herald is seriously flawed, I can reveal. Not because it was an Internet based survey (even though that by itself makes it fairly self selecting), but because they gave respondents only three options – that the minimum wage should be reduced from $12.50, that it should stay at $12.50 and that it should increase to $15.00.

That is an appalling list of options, as it doesn’t allow people who support a smaller increase (say of 50c to keep pace with inflation) to say so. The Herald has done a disservice to readers by not making clear what the options were, when they report 61% back a rise to $15. That was the only option people were given for a rise.

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39 Responses to “Minimum Wage”

  1. Inventory2 (10,177 comments) says:

    None of the 20+ staff we employ are on the minimum wage, and most earn significantly more – that is OUR choice. We pay our staff what WE believe they are worth. And our business grew 30% last year, when others were retrenching or failing. Could there be a connection?

    Raising the minimum wage to $15/hr would be catastrophic for small business.

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  2. Scott (1,736 comments) says:

    Totally right DPF. The abolition of youth rates has had the effect of raising youth unemployment apparently to a staggering 50%!
    Another gift to society from former green MP Sue Bradford.

    I think we need a lower minimum wage as some jobs are not worth $12.50 an hour. And employers just cannot afford to pay that much for lower skilled jobs.

    And to re-introduce youth rates in my mind makes a lot of sense.Young people such as my children who are still at school would quite happily work for lower wages. But they can’t because employers, such as the local supermarkets, will not hire young people at that artificially high price.

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  3. Bed Rater (239 comments) says:

    Its a pretty pointless survey. They should ask “Should the government subsidise ice cream at popular summer destinations during the months of Dec – Feb”

    It (along with many other ridiculous proposals) would also get similar approval.

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  4. andrei (2,532 comments) says:

    The minimum wage is paid to people like my girls who had weekend jobs, while still at school.

    They worked in dairies, fish and chip shops but from there moved on to Lotto with attendant pay increases.

    Its foot in the door jobs that are minimum wage as a rule and jobs which probably wouldn’t exist if the pay for them got too high.

    There is a tax issue with them though, one that caught both my daughters when they held two part time jobs – one of which was classed as “secondary employment” and they were soaked for their work at a higher rate can’t remember the details now but it really hurt their bottom line at the time.

    Instead of raising the minimum wage I reckon the first $x (x to be defined) should be tax free – it used to work this way which meant people starting out were given a leg up

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  5. bchapman (649 comments) says:

    Then again, there would be some benefits.
    1. Employers would look for some productivity gains from their staff if the had to pay them more. ie more training. They would also invest in technology rather than using the money to spend on cheap labour. This would have benefits for overall productive value from our workforce. This does have benefits in times of labour shortage.
    2.The extra money earned would be good for the economy. The low paid are likely to spend the money on essential and services which would boost profitability of some sectors.
    3. Improved reward would likely improve employee performance. This helps individual business and overall productivity.

    In the business I work in, wages do constitute a major expense. The employees who get the largest pay increases do seem to be the most motivated ones. Profitability however does not seem to decline when wages go up. Occasionally have to work with individuals I wish we never employed, they make work harder for everyone else no matter what they are paid.

    I’m not for blanket wage increases for the sake of them- but its worth recognising the benefits of a happy well trained staff.

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  6. Pete George (23,326 comments) says:

    Another example why policy by public poll (or referendum) is mostly best avoided.

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  7. KiwiGreg (3,218 comments) says:

    @bchapman None of your arguments, even if valid, speak in favour of compulsion and uniform treatment which is what raising the statutory minimum wage does.

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  8. Pita (373 comments) says:

    Lifting wage rates can encourage investment in capital equipment to improve productivity at the expense of staff. It can also encourage businesses to look at other options like relocating offshore again at the expense of staff.

    The suggestion that “it’s all part of the movement to a high skill high wage economy” is just puffery.

    In the real world, an export based economy such as New Zealand, producers cannot just pass on an increase in costs to their customers, no matter how much the likes of Trevor may wish it to be so.

    I can hear the howls of “added value” coming back down the line…more puffery.

    I wonder if Trevor has ever noted the “made in China” on many items that were previously manufactured in New Zealand and wondered why?

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  9. Adolf Fiinkensein (2,831 comments) says:

    David, don’t sell yourself short. What about barrel racing?

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  10. somewhatthoughtful (457 comments) says:

    i read somewhere that trev was an accountant? anyone know this?

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  11. Countess (157 comments) says:

    So the lowest paid can forget about a Brighter Future ™ then.

    Instead of looking for numbers to support your position, why not just make them up. Works for the GOP in the US.

    Your previous graphs were supported by questionable assumptions , why stop there

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  12. redqueen (520 comments) says:

    Labour, once again, don’t seem to understand the idea of ‘contradictions’ (very hard to understand, I am aware). If you increase the price of labour, then yes, it tends to increase productivity, as it changes the labour-capital cost-benefit ratio. Arguing that you can, or should, do this during times of labour shortages is spurious because during such times you’d have a natural increase in wages as the supply of workers would be, by definition, below the demand. So raising a government imposed minimum wage, at that point, would only harm the least experienced workers (as it always does) and just raise a nominal cost of labour that is already rising.

    The argument, per above, that the low-paid tend to spend more of their income is the same sort of thinking that has kept us in a current account deficit for so long. What we don’t need to be doing is encouraging people, through a government policy (in this case, a minimum wage) to be purchasing foreign produced goods. Arguing that people would save more, and thus reduce our dependence on foreign investment, might carry some weight, but our economic fragility is based on an economy that has been living in fantasy land for a decade plus. Better that companies, who tend to expand the productive side of our economy, should retain profits and invest them, either passively or in new capital, than we should all be given an extra $10 (‘directly’ or ‘indirectly’) to purchase a new t-shirt made in China.

    The problem seems to be that people (mainly the non-business sort) don’t understand the difference between productivity and labour cost. That I make efforts to increase business productivity, as a lowly paid person (by accounting standards), is a function of liking my employer and colleagues, rather than because I’m paid more. I might be more motivated to increase productivity yet further, and work harder, if paid more, but I know that my employer can’t afford it at the moment and that the areas of employment which are expanding are those which are more labour intensive (dealing with customers, rather than finance). That is a matter of economic reality, even if it will hinder some of our productivity, and to say that we can fix this through simply increasing a nominal labour cost is to fundamentally misunderstand what really leads to higher productivity and, with it, greater potential for personal income.

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  13. Richard Hurst (796 comments) says:

    Here we go again. The same old arguments both for a rise (Left wing) and against a rise (Right Wing) will be wheeled out, the dust blown off and taken for a spin round the block before being put away again ready for next time.

    So here’s a different approach: From 2010 anyone earning $35 K a year or under gets their personal income tax cut by 5% each year until their income tax reaches zero in 20 years time or of course the tax cuts stop if their income rises over $35 K.

    1. This would raise the standard of living among the lowest paid.

    2. Would mean zero cost for employers

    3. Would over time reduce the need for welfare for the working poor thus reducing overall welfare costs and saving the tax payer money.

    4. Those savings over time can be passed on as tax cuts for higher earners.

    5. Having such a relatively small amount of Crown revenue lost over a relativity long time period would mean that Crown accounts would not be left with a massive shortfall in revenue as a result.

    6. Would need to be combined with continued govt austerity and restraint in spending. Once this recession is over we must not go back to the bad old days of rampant state sector expansion under Labour.

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  14. Jeff83 (771 comments) says:

    There is a tax issue with them though, one that caught both my daughters when they held two part time jobs – one of which was classed as “secondary employment” and they were soaked for their work at a higher rate can’t remember the details now but it really hurt their bottom line at the time.

    The secondary employee tax rate is there to try and ensure people do not under pay tax due to going into the next tax bracket yet not have it included in ones PAYE calculations.

    However if one thinks that they will not pop into the next tax bracket, or they will be over taxed they can apply for a special tax rate from the IRD I think to compensate this. Alternatively they can file a tax return at year end.

    Both of which are annoying I know, but I guess there is a reason to the madness, being a progressive structured tax system.

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  15. PaulL (5,983 comments) says:

    Agree Richard, same old arguments.

    bchapman: “the employees who get the largest increases seem to be the most motivated ones.” Cause or effect? My view is that the most motivated people get the largest increases. You seem to be suggesting those who get the largest increases become the most motivated?

    The discussion about productivity, capital investment and wages is very much a chicken and egg situation. Yes, if wages go up employers will invest more. But there are two possible cycles here:
    – wages go up, employers invest more, and get rid of employees who are no longer worth their pay. This is a downwards spiral for employment, although it may increase reported productivity
    – workers invest their own time or motivation in becoming more productive, employers pay them more (as they’re more productive), and since the labour/capital balance has shifted a bit, they invest more capital. This is an upwards / self reinforcing spiral that results in more employment.

    Probably elements of both theories are correct, but I certainly prefer the second one. The old school view of employees as being passive takers of what the employees offer is very misleading. Employees can easily invest in their own productivity, either through training themselves, or simply through modifying their attitude and aspirations.

    This is one of the great crimes of WFF. It has locked so many people into an environment where changing their own work performance, and therefore their gross pay, has almost no impact on their net pay. So why would you bother? And once you stop trying to improve, that becomes a habit, and it locks us into a low productivity economy. That policy was one of Labour’s great crimes in their last period in government.

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  16. Inventory2 (10,177 comments) says:

    Does it come as any surprise to anyone that the impetus for this campaign is coming from one Matt McCarten, and his UNITE union – which IMHO is to the Trade Union movement what Destiny is to the church :-)

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  17. fatman43us (166 comments) says:

    Ummm – raise the Minimum Wage so struggling companies reduce their staff. Unemployment increases, taxpayers meet the difference. Is it not better to have no minimum wage, and allow these matters to be settled by the employee and employer.

    Matt McCarten is a typical Socialist leech living from the workers blood. Some of the workers need to do a little reading and thinking on how economies work. Start with Adam Smith.

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  18. MT_Tinman (3,044 comments) says:

    The gummint should in fact be working towards no minimum wage.

    If a person is too bloody lazy or stupid to ensure he has salable skills he deserves only what an employer is prepared to give him.

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  19. cha (3,856 comments) says:

    Ummm – raise the Minimum Wage so struggling companies reduce their staff.

    Or company owners reducing their staff because they’re so stupid they didn’t notice a $460,000 rip off.

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  20. big bruv (13,558 comments) says:

    Nothing angers me more than Labour banging on about raising the minimum wage to $15 per hour when the bastards had nine years to do it when they were in power.

    Their argument that a higher minimum wage will result in a higher skilled workforce is pure bullshit, the same people who earn the minimum wage now will not do one single thing to up skill themselves if the minimum is raised.

    The only possible reason why you might raise the minimum wage is that it needs to be significantly greater than what one can earn on welfare, of course, the current economic climate does not allow that so to maintain the gap between what one earns on benefits and from the minimum wage we need to see an immediate slash in benefits.

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  21. PaulL (5,983 comments) says:

    Or, big bruv, a large tax free threshold and more gradual benefit abatement, so that someone on a benefit that gets some part time work gets to take home at least 60% of what they earn from that part-time work. At the moment the various abatement rates mean that getting part-time work results in you losing 80% or more of it (depending on what benefits and allowances you’re getting). If you factor in the bit where you actually have to go to work, so a lot of time commitment for not much, and you have to pay for some extra stuff (petrol and/or bus, clothing, etc) then you may end up going backwards.

    The current scheme therefore means you should either just stay on the benefit and not bother, or you rort the system, and do your part-time work for cash. Which makes things even worse if that part-time job gets a few more hours, and then a few more, and there is no logical point where you can go legit.

    In short, the current system is broken. National are in a position where they could put it right – surely nobody on the left could argue with an increased tax-free threshold or lower abatement rates? My programme would be:
    1. Fix the abatement rates / taxes
    2. Offer an amnesty for everyone currently outside the system / rorting the system
    3. As part of that amnesty make everyone reapply for a benefit. If you have no part-time work, you must come in to reapply every month. If you have part-time work (remembering you’re not getting taxed on that part-time work) you come in less often, and we set it up so you can come in on a day you’re not working.

    I reckon benefit expenditure would actually drop, even though those truly deserving are getting more (due to lower abatement rates).

    I reckon this is classic politics – in the same way nobody on the right could complain when the Lange govt set about reforming taxes to make them on average lower, nobody on the left can complain when a National govt set about reforming the benefit system to make those most deserving, on average, get more benefit.

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  22. Paulus (2,562 comments) says:

    Economics 101 – the law of Diminishing Return – the higher you push up the price the less you sell.

    Typical Labour lite economics.

    Where is Philly Goofy these days? – or are Curren & Ducky Mallard running labour – no wonder their lite – we used to call it Piss and Wind – so no change there.

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  23. berend (1,673 comments) says:

    As a parent I would be appalled if National decides to increase the minimum wage. I want my kids to get a job. You bet that if the minimum wage increases, my kids won’t have a change to get job experience as they will be outcompeted by those who are older or have more experience.

    As DPF said, it’s already true that youth employment has skyrocketed since the minimum wage was increased.

    The minimum wage should be abolished. That would equally help two big groups. More young people would get a chance to gain experience.

    And secondly, wages would go up. Seriously. NZ wages are now tied to minimum wage. If the minimum wage disappears, there’s no excuse for employers that they pay above the minimum wage or the minimum wage, but every employee (and unions) can fare more easily negotiate appropriate wages instead getting a wage based upon a government set minimum wage.

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  24. stephen (4,063 comments) says:

    Nothing angers me more than Labour banging on about raising the minimum wage to $15 per hour when the bastards had nine years to do it when they were in power.

    I guess you didn’t notice they raised it several times while they were in power smart guy. $15 is just the next increment they’d be looking at raising it to.

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  25. toad (3,672 comments) says:

    DPF said: Already we have seen the abolition of the youth minimum wage which has had a devastating impact on youth employment levels.

    Concidence doesn’t prove causation. The impact on youth employment wouldn’t have had anything to do with the fact that the economy went into recession, would it? Significant minimum wage increases between 2000 and 2008 didn’t have any negative impact on employment.

    The simple fact of the matter is that a 15 year old working at a department store (my first significant job) does not produce $15 an hour worth of value.

    The minimum wage does not apply to 15 year olds.

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  26. Tauhei Notts (1,649 comments) says:

    It would be appreciated if sufficient notice could be given for any such increase.
    The exporting business I am involved in employs 80. Their local school is decile one and they live, fittingly for them, more than 47 kilometres from the nearest KFC.
    If the minimum wage goes to $15.00 we must plan for the liquidation of the company. End of story! For directors can be personally liable if they continue to have a company trade that has no show of meeting its debts.
    The increase to four weeks annual holidays knocked our costings severely. The Kiwisaver imposts were tough to handle. The increase to $12.50 minimum wage had the cost accountants squirming. Indeed, the drop in the company tax rate meant a severe reduction in the value of our tax losses carried forward.

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  27. Manolo (13,517 comments) says:

    “Trevor’s only jobs have been a teacher, an MP and a unionist.”

    Yes, an accomplished trougher. And a thug, too.

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  28. Ryan Sproull (7,060 comments) says:

    Paulus said:

    Economics 101 – the law of Diminishing Return – the higher you push up the price the less you sell.

    Typical Labour lite economics.

    You learned that in Economics 101?

    Did you go to AUT or something?

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  29. Grant Michael McKenna (1,157 comments) says:

    I’d like to go on record as supporting a $15,000,000 an hour minimum wage.

    Just as realistic, and would be a lot more useful for me.

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  30. ISeeRed (244 comments) says:

    Why does a welfare state like New Zealand need a minimum wage if there is welfare?

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  31. Sonny Blount (1,847 comments) says:

    Concidence doesn’t prove causation.

    Why do you conveniently forget this when it comes to climate change toad?

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  32. scanner (340 comments) says:

    If they are so fucking keen for youth to earn more it should be the government that fund it via a tax cut, not business yet again, most small operation are still struggling with the last one that that “leveled” the playing field between children and adults.
    It’s not surprising that Tiger Mallard is pushing this, you would struggle to find someone more out of touch with the real world than this philandering drongo, with union official, teacher, trougher,and MP as qualifications Tiger. is certainly in touch with the common man, Yeah Right.

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  33. Sean (299 comments) says:

    In Singapore we pay no tax on the first 20K and 3.5% on the next 10K. We don’t have a minimum wage. There is a labour shortage.

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  34. Chuck Bird (4,765 comments) says:

    I have been of the view that we have two liberal left wing major political parties. However,Trevor has demonstrated the damage Labour can do if re-elected. i have the utmost sympathy for some unskilled people on the minimum wage. However, you do not have to be a rocket scientist to see what skilled people would do if such a stupid policy was implemented. They would either preess for aprity or go to Oz Trevor should stick to what he is good at short one-liners and leave economic policy to someone who knows the damage run away inflation can do to a country.

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  35. ISeeRed (244 comments) says:

    No way, Sean! There’s no unemployment benefit there either, right? Singapore’s streets must be littered with jobless, homeless people begging for food and desperate to work for $1 a day. That’s all employers will offer when there’s no minimum wage, right? [Sarcasm] New Zealand desperately needs real tax and welfare reform. NOW.

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  36. James (1,338 comments) says:

    Just what business is it of the States what employers pay employees in a consentually agreed contract?

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  37. Rufus (647 comments) says:

    People sometimes ask me why I don’t read the local newspapers or watch the news on TV.

    I despair at the trite that’s published as “news” these days.

    The article on stuff screams “Prime Minister John Key has ruled out a minimum wage increase to $15 this year despite 61 percent of New Zealanders supporting the hike in a recent survey.”

    Bullshit.

    61 % of their sample supported this.

    Their sample was only 2300 people.

    Assuming there’s roughly 4million of us, their sample is insignificant.

    Utter, utter rubbish.

    Rufus

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  38. JC (933 comments) says:

    Trevor is arguing seriously good partisan politics here. Raising the minimum wage on a fragile economic and business climate will impact most on Maori, PI and some immigrant groups. That would help split them off from National at the next election.

    Thats about all we need to consider from Labour’s pov.

    JC

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  39. LabourDoesntWork (286 comments) says:

    As an historical aside, I was amused to read in Liberal Fascism by Jonah Goldberg that the early purpose of the minimum wage was a eugenics one. It was designed to prevent lower wage earners from competing with those who actually deserved the higher wage thereby excluding them from the market and “accelerating their elimination as a class.” As Goldberg points out (p.264) this is precisely the conservative argument against the minimum wage. Socialist Sidney Webb: “Of all the ways of dealing with these unfortunate parasites, the most ruinous to the community is to allow them unrestrainedly to compete as wage earners.”

    Now I have no doubt Trevor Mallard is promoting the minimum wage for the usual leftwing demagogic appeal-to-emotion, not for any (more thoughtful) eugenics purpose; but it just shows how devoid of reason popular political ideas of the left can be for their supporters.

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